Rusoro Mining (RML, TSXV) – Trading for pennies, this producing gold company is building a dynasty in one of the richest untapped gold districts in the world.
A year ago I proclaimed that Rusoro Mining was my top pick. This unhedged gold producer was forecasting to triple production by 2013 and with lots of cash in the bank, acquisitions looked like a real possibility which would only enhance the organic growth and the solid fundamentals the company possessed.

And boy was I right – more than I could possibly dream of! Rusoro seems destined to become one of the major market winners that will emerge from this market meltdown.

They have shown they can unlock the value in the ground for mining operations where others could not. Rusoro bought Choco 10 mine from Gold Fields and cranked up the production. They bought two mines from Hecla and are rationalizing them.

Today they announced a takeover bid for Gold Reserve (GRZ-TSX), giving shareholders of that company an instant triple in a tough market. The management team of Gold Reserve has been plagued with delays at its multi-million ounce Brisas deposit, this after spending more than 15 years and over $230 million trying to advance the project. They have gone so far as to start selling some of the mining equipment to be used at the mine in order to raise cash, presumably for other purposes!

If this bid is successful, Rusoro will have almost 30 million ounces of gold in the ground, almost $100 million cash and production of over 100,000 ounces with a projected target of 300,000 to 500,000 within five years.

Andre Agapov, Chief Executive Officer of Rusoro flatly stated that they could “unlock the permitting deadlock that has plagued the timely development of the Brisas Project.”

To be blunt, Gold Reserve has basically nothing but a chunk of land in Venezuela, without mining permits, that will likely never produce, and an after debt cash position of $2 million.

The option facing their shareholders is, do I take a 30% stake in Venezuela’s biggest gold producer that is growing reserves and production like crazy or do I hope Gold Reserve management can resolve their permitting issues? If they think the later, their destined for failure.

History of Acquisitions

A year ago, Rusoro Mining purchased 100% of Gold Fields International's (GFI)Venezuelan assets featuring the producing Choco 10 mine for $516 million in cash and stock. GFI is now Rusoro's largest shareholder with a 38% stake. Rusoro only paid about $70 per ounce for GFI's gold assets. Just two years ago, GFI, the giant South African gold miner, paid $130 an ounce for the mine. Rusoro has purchased these assets at a deep discount with fantastic – and fast growing cash flow.

That seems like a sweet deal for Rusoro but why would GFI make such an offer? In Venezuela it’s all about relationships with President Hugo Chevez and his government. It’s something other foreign mining companies don’t have and a result, are being stalemated in developing their gold assets.

Rusoro's Chairman and controlling shareholder is a Russian entrepreneur, Vladimir Agapov, who has forged strong relationships in the country. And in a broader sense, Russia and Venezuela have very tight ties economically and politically.

But for us investors it means that Rusoro can get permits passed and bureaucratic problems are quickly solved. This is something GFI experienced and they very publically stated that Rusoro was better positioned to unlock the value of their Venezuelan assets, and took a back seat with a large share block – a win-win-win – for Rusoro, GFI, and us the shareholders.

This acquisition has given Rusoro 25,000 hectares of prime exploration ground in the prolific Bolivar State Gold Belt of Venezuela – which is comparable to other districts that have produced tens of millions of ounces, including Ashanti in West Africa and Kirkland Lake in Canada.

Bolivar State is also home to the 20 million ounce Las Cristinas deposit as is the 14 million ounce Brisas gold deposit. I can see the writing on the wall…

This past summer the relationship solidified between Rusoro Mining and the Venezuelan government when Rusoro was named as a ''partner of choice'' for gold mining opportunities.

This news came on the heels of an announcement that Rusoro received the government's approval to complete the US$25 million acquisition of Hecla Mining Co.'s Venezuelan assets. This deal saw Rusoro pay $20 million in cash and 4.3 million shares, then worth $5 million to acquire Hecla’s assets.

Hecla Mining was having some operational issues in Venezuela and after a three month shutdown Hecla decided a partnership scenario with Rusoro would be the best win-win option.

This time though, Rusoro and the Venezuelan Ministry of Mines with Basic Industries formed a 50/50 partnership involving Empresa de Produccion Social Minera Nacional C.A., a ministry subsidiary. The key assets in this deal are the Block B Isidora mining leases and the Camorra mill.

Rusoro reported on December 1st that after their first full month of operation, the Isidora mine produced 4,722 ounces at an estimated cash cost of $247 which were processed at the Choco 10 plant. “Gold production levels are being ramped up considerably up from the levels achieved in September, with a steady-state production level of 6000 to 7000 ounces per month established as a target.”

Obviously huge potential was unlocked from a formerly stalled operation where Hecla management did not have the connections in-country to get the job done.

But that still leaves two major targets…

Could Rusoro Unlock the Value for Gold Reserve and Crystallex??

Two of Venezuela’s top gold projects are currently stalled due to permitting issues. The Brisas project owned by Gold Reserve and next door Crystallex’s Las Cristinas project have huge potential.



Today Rusoro announced a take-over bid for Gold Reserve who own the prospective Brisas gold property. Rusoro is offering Gold Reserve shareholders 3 Rusoro common shares for each Gold Reserve Class A common share.

The offer values Gold Reserve at C$1.08 per each Class A common share and each equity unit, and represents a premium of 140% based on the December 12, 2008 closing prices and a premium of 209% based on the volume-weighted average trading prices for Rusoro and Gold Reserve for the previous 30 trading days on the TSXV and the TSX, respectively.



The benefit for Rusoro shareholders is huge. Over 10 million additional gold reserves.

For Gold Reserve shareholders they get the benefit of:

• Immediate Production of over 100,000 gold ounces in 2008 plus organic growth.
• Organic production Growth from existing proven and probable reserves.
• World Class Reserve and Resource Base of 12.2 million ounces of proven and probable gold reserves. Measured and indicated resources, inclusive of reserves, would total 18.9 million ounces of gold. The combined company would also have additional resources of 9.3 million inferred gold ounces. In addition, the Brisas Project contributes 1.4 billion pounds of copper in proven and probable reserves.



The takeover bid will be open for acceptance until 12:00 midnight eastern time, January 21, 2009, unless Rusoro extends or withdraws the offer.

Conclusion

Both Hecla Mining and Gold Fields saw the writing on the wall and opted for a partnership arrangement whereby they could still reap the rewards of their gold assets by allowing Rusoro to manage their projects.

Gold Reserve shareholders must now decide if they want 100% of nothing or 30% of Venezuela’s biggest producing and fastest growing gold company. Rusoro has proven they can quickly get permits and solve logistical problems where other well seasoned mining companies could not.

There are very few undeveloped large-scale gold deposits as you’ll find in Bolivar State in Venezuela. Venezuela's goldfields are where South Africa's were 125 years ago – just getting started. Rusoro is the recognized consolidator for major gold mines. Gold Reserve’s management might stay in denial about their ability to move Brisas forward but I think Gold Reserve’s investors will see the opportunity and Rusoro will eventually bring the Brisas into production.

As I’ve been stating for months, the only way private investors can profit from the vast gold wealth in Venezuela is by investing in Rusoro Mining.